Article highlights
★ Review of the cyclical stock market during previous PPI upswings
- The "Five Golden Flowers" in 2003: In 2003, A shares ushered in the "Five Golden Flowers" market dominated by blue-chip stocks . The cyclical stock market started half a year later than the PPI upward trend, but the market high point appeared during the second surge of PPI. Steel's overall performance exceeded that of and the broader market . The performance of the cyclical sector has generally rebounded, and the valuation performance is relatively reasonable. During this period, sub-sectors such as general steel and fiberglass performed well.
—— 2007-2008 "Coal is flying": This round of cyclical stock market started with the start of the bull market, leading the PPI indicator for half a year, and showed a trend of rising and falling back . Only coal stocks once had a structural rebound during the decline. The performance fluctuations of the cyclical sector are limited, and the valuation shows high elasticity. During this period, non-ferrous metal stocks surged tenfold.
—— The second "coal is flying" in 2009-2011: This round of cyclical stock prices is once again in sync with the general trend, leading the PPI performance for more than half a year. After experiencing a correction on the way, the cyclical sector experienced a second surge and exceeded the previous high. Coal and non-ferrous metals outperformed the market throughout the process, while steel, petroleum and petrochemicals performed mediocrely. During this period, the non-ferrous metals and petroleum and petrochemical sub-sectors took the lead.
—— 2016-2017 commodity bull market market: The current cycle market appears with the bull market and is once again ahead of the PPI indicator. Subsequently, due to the continued release of systemic risks, the performance of the sector was suppressed, showing a trend of highs and lows later. In this round of market conditions, the dominant cyclical sector has switched from steel to non-ferrous metals. In the later period, the excess returns of non-ferrous metals and coal were equivalent, and the highest valuations of non-ferrous metals and steel were nearly 100. At different stages of the market, non-ferrous metals have the highest rises and declines among stocks.
★ Investment advice: The second spike in PPI growth is the key to grasping the cyclical market
- The rising PPI means a periodic improvement in the economy, expansion of demand, and a basis for improvement in the performance of cyclical stocks and market performance. However, by reviewing the cyclical stock market during previous PPI rises, we can find that the cyclical stock market often appears with the start of the market market, so its absolute return performance and the PPI indicator show a relatively obvious time misalignment. However, from the perspective of excess returns, the PPI indicator has a good reference value. The excess returns of cyclical stocks are mainly concentrated during the second surge of the PPI index. The second surge of PPI growth rate is the real window period for long cyclical stocks, and PPI The month-on-month change is an important basis for judging whether PPI will correct or rise again on the way. In terms of sector allocation, coal and non-ferrous metals have always been the focus of cyclical market allocation, while petroleum and petrochemicals have lagged behind. In addition, market style switching is also an important systemic factor affecting the returns of cyclical stocks.
- Next, we will explore the rules that promote the cyclical stock market from the deep causes of the cyclical market, such as macro, market and performance, and study how to invest in cyclical stocks with high frequency; combined with the trend of cyclical stocks since May 2020 Performance characteristics look forward to the future development direction of cyclical stock market and provide suggestions for key allocation directions.
Risk warning: Economic performance is lower than expected, global commodity inventories rebounded more than expected, and a black swan event occurred
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Comparative study of historical market prices of cyclical stocks 1: History Review of cyclical stock market during the second PPI uptick
Commodity prices continue in this round The rise in inflation expectations driven by the rise has attracted market attention and pushed the PPI growth rate to rise continuously. During this period, cyclical stocks continued to perform well, but have fallen back recently. So whether the cyclical stock market is over and whether the market has returned to the main line has become a hot topic. Here we will launch a series of reports to review and analyze the cyclical stock market from a strategic perspective, and explore the future development of the cyclical stock market.
The research object of this article focuses on the upstream industries of the cycle (hereinafter referred to as cyclical stocks), and the indicators used vary according to time: before 2004, it was Shenwan Extraction, chemical industry, steel and non-ferrous metal index in the first-level industries, 2004 After the year, it will be CITIC's first-tier industries of petroleum and petrochemicals, coal, non-ferrous metals and steel. As the first part of a series of studies, this article aims to study the correlation between the performance of cyclical stocks and PPI growth performance in history, and then draw conclusions that have certain reference value for investment.
The "Five Golden Flowers" era from 2002 to 2004
In 2002, heavy industrial and heavy investment industries such as steel and automobiles entered a stage of rapid growth, and the profit performance of A shares improved overall; the international prices of raw materials such as non-ferrous metals and oil increased significantly, pushing the PPI upward. The five major blue-chip sectors represented by steel, automobiles, finance, petrochemicals and electric power have performed well and are called the "Five Golden Flowers Era". The cyclical sector performed relatively well in the "Five Golden Flowers" era from 2002 to 2004, showing the following characteristics:
. There was a significant correction during the period when PPI's year-on-year growth rate surged, and the growth rate did not stop falling after it reached the peak. , with a pointed top. The current upward cycle of PPI growth can be divided into three stages: Stage 1: The year-on-year growth rate of PPI continues to rise from the low point in February 2002. In February 2003, the month-on-month growth rate of PPI peaked for the second time, turning from positive to negative in March. During the same period, the year-on-year growth rate of PPI peaked at 4.6%; in the second stage: the year-on-year growth rate of PPI entered the correction stage after reaching 4.6%. In 2003 In May 2003, the month-on-month growth rate bottomed out and rebounded again, and the year-on-year growth rate of PPI bottomed out; in the third stage: in October 2003, both the month-on-month and year-on-year PPI growth rates started to rise again, reaching the highest point of this PPI cycle in October 2004. At 8.4%, the month-on-month growth rate reached the top in September. Then the PPI upward cycle ended immediately and entered the downward stage.
. The start of the cyclical market was later than the start of the PPI growth rate, but the market high point appeared during the second surge of PPI. From 2001 to 2002, the market mainly fluctuated, and the cyclical sectors basically fluctuated in sync with the broader market. It was not until 2003 that as the market trend stabilized, the cyclical sector began to stabilize and rise. At this time, the growth rate of PPI has been rising for nearly a year, and the cyclical market obviously lags behind PPI. In the third quarter of 2003, cyclical stocks experienced a correction along with the market, and then launched a second surge. They reached the high point of this market in March 2004, and then fell back quickly. There was a slight rebound in September 2004, but it did not change that the current market situation was basically over.
. Steel outperformed the market throughout the entire process, mining excess returns started late, chemicals and non-ferrous metals performed weaker than the market throughout the process, and internal differentiation was obvious. This round of cyclical stocks did not begin to show an advantage over the broader market until the market warmed up. As one of the "Five Golden Flowers", steel stocks performed more prominently in this round of cyclical stock market, and their performance throughout the whole process basically exceeded the market. Coal stocks did not start to start and outperform the market until they entered the third stage. The chemical industry and non-ferrous metals have been performing weaker than the broader market, and the internal differentiation of the cyclical sectors is more obvious. October 2003 was the starting point for the second round of excess returns, when PPI ended and was adjusted on the way. Subsequently, the excess earnings of steel formed an N-shape, while the excess earnings of mining continued to rise until the highest point of PPI. At the end of this round of market conditions, the steel index recorded an excess return of 25%, and mining was approximately 20%.
. After entering 2002, the performance of the cyclical sector began to continue to improve, ROE increased year by year, and the steel and mining ROE was significantly ahead. This round of market conditions reflects important changes in fundamentals. In 2001, the growth rate of net profit attributable to the parent company of the cyclical sector and Shanghai Stock Index was both negative. After entering 2002, the performance of the cyclical sector improved significantly, and ROE continued to increase. In 2003, the growth rate of net profit attributable to the parent company of the steel sector reached a periodic peak, and in 2004 The net profit growth rate of mining and chemical industry exceeded that of steel. The net profit growth rate of mining stocks was not released until 2004, which can partly explain their late market trend. The ROE of chemicals and non-ferrous metals has changed less, and the growth rate of net profit attributable to the parent company of the two companies was negative from 2001 to 2002, which is easy for the market to ignore.In fact, the performance of non-ferrous metals exploded in 2004, but it was already at the end of the market and the market had sluggishly rising;
, the valuation fluctuations of the cyclical sectors in this round of market were relatively low compared with the subsequent rounds of market, and the highest valuation was only 50 times , which is equivalent to the Shanghai Stock Exchange Index. During the cyclical stock market in 2003-2004, although the four sectors were differentiated, their valuation fluctuations were at a relatively reasonable bull market level, which was almost the same as the Shanghai Stock Index fluctuation level. The highest valuation of the best-performing steel sector was only 26.5 times, which eventually fell back to 8.6 times; non-ferrous metals once reached 50.4 times, which was the highest valuation ever achieved by the four-cycle sector and was equivalent to the 49-fold valuation of the Shanghai Stock Index at its highest. The reason may be related to the continued rebound in performance of the aforementioned cyclical sectors from 2001 to 2004, which digested the high valuations and generally matched the valuations and performance.
. From the performance of the third-level industry, steel stocks fluctuated greatly, and the continued rise in oil prices played a positive role in the performance of the sub-sector. During the cyclical stock market, during the two rounds of rising prices, ordinary steel had the highest earnings, but the leading industry switched from fiberglass to oil processing and mining. Especially during the second phase of the correction, fiberglass closed up 3.7%, showing a certain Drop resistance. After the market entered the fourth stage, special steel suffered the largest decline, and the steel sector fell back significantly. The continued rise in crude oil prices has played a positive role in the performance of related sub-sectors. Especially during the period when the PPI growth rate is rising, although the chemical industry sector is generally weak, oil and gas drilling, petroleum processing and other sectors perform at the top, surpassing ordinary steel.
. During the rising phase, cyclical bull stocks are mainly concentrated in steel, while chemical stocks perform better during the falling phase. The cars in the "Five Golden Flowers" market in 2003 gave birth to many stocks that doubled. In the first stage of the rising market, among the stocks belonging to the cyclical sector, Linggang Co., Ltd. and TEDA shares led the gains; during the second stage of the correction period, Shandong Gold, Jilin Chemical Industry, Chengzhi Co., Ltd., etc. recorded gains, showing resistance to the decline; In the third stage, there is another upward surge, led by CITIC Special Steel , Shanghai Petrochemical , etc.; in the fourth stage, the decline period has just ended, and chemical sector stocks occupy most of the positions on the list. Within the entire PPI upward range, Yangzi Petrochemical, Shanxi Coking Coal, ST Salt Lake, etc. led the gains, and there were many bullish stocks in the chemical industry and mining reserves.
In summary, the most prominent features of the "Five Golden Flowers" era are the late start of the cyclical market, poor overall market environment, failure to fully reflect the impact of demand after joining WTO, and the market is not "effective" enough. At the same time, the internal differentiation of the cyclical sectors is relatively obvious. There is no logic such as the continued rise in crude oil prices and the release of demand, which inevitably leads to the consistency of cyclical sectors to obtain excess returns. The performance of the mining and steel sectors is mainly concentrated, and the excess returns are mainly concentrated in the third stage. , which corresponds to the PPI growth rate being in the second surge stage, and investment can be done on the right side of the PPI growth rate. There are many bull stocks emerging in the chemical sector.
007-2008 " coal flying color " market
In 2007, despite the tightening of monetary policy caused by economic overheating, A-shares still ushered in a bull market. During this period, cyclical stocks performed well, with coal, steel and non-ferrous metals all rising more than the Shanghai Stock Index, showing a "flying coal" market that belonged to the cyclical sector that was different from the "Five Golden Flowers" era. By sorting through the data, we can find that this round of market has the following characteristics:
. The year-on-year growth rate of this round of PPI continued to increase, which was relatively smooth compared to other rounds, and finally ended due to the onset of the financial crisis. The year-on-year growth rate of PPI began to rise in July 2007, reaching its peak from July to August 2008. Among them, PPI rose slowly from July to September 2007, and then began to rebound month-on-month after September, accelerating the growth rate of PPI; in March 2008, the month-on-month growth rate of PPI fell again, pushing the PPI year-on-year growth rate slope to slow down, but the PPI growth rate in May The speed is accelerating again. From July to August 2008, PPI remained at the current high of 10%, and then the financial crisis swept the world, causing the PPI growth rate to fall rapidly thereafter.
. This round of cyclical stock market started with the start of the bull market, leading the PPI index for half a year, and showing a trend of rising and falling. Only coal stocks once had a structural rebound during the falling process. A shares started a bull market in mid-September 2006. Cyclical stocks represented by steel have been bullish simultaneously, leading the PPI growth rate for more than half a year. When PPI began to move upward in July, cyclical stocks peaked at this time, and then cyclical stocks fell back in shock. It was not until April 2008 that the coal sector rebounded briefly, at which time PPI was beginning to accelerate its upward trend. During the period when PPI growth surged the fastest, the cyclical sector fell back to the bottom. This round of cyclical stock prices and PPI are basically "front foot in and back foot out". The stock market's own operating rhythm has a greater impact than fundamental indicators, showing that the cyclical market is significantly ahead and ends prematurely.
. This round of non-ferrous metals, steel and coal have led in excess returns, but the excess returns of petroleum and petrochemicals have fallen in a "mirror image", showing a clear "coal flying" market characteristics. Judging from the performance of excess returns, during the bull market in 2007, non-ferrous metals' excess returns were clearly dominant. However, after entering July, steel caught up. Near the top of the market, the excess returns of non-ferrous metals, coal and steel reached their peaks; in subsequent cycles, excess returns Out of the deep V, the excess returns of coal stocks surpassed steel in 2008 and peaked in May; then the excess returns of coal, steel and non-ferrous metals quickly converged. The petroleum and petrochemical sector was affected by the short-term drop in crude oil prices in 2006 and was relatively poor. Its excess returns even showed a "mirror" trend with the other three sectors, significantly underperforming the Shanghai and Shenzhen 300.
, and during this round of market conditions. The valuation elasticity of cyclical sectors has increased significantly, and coal has the highest valuation of cyclical stocks. During this round of market conditions, the valuations of cyclical stocks showed higher elasticity than in 2003. The highest valuations of petroleum and petrochemicals, coal, non-ferrous metals and steel after excluding negative values were 41.5 times, 74.1 times, 66.2 times and 29.0 times respectively. In the same period, Shanghai and Shenzhen 300 reached a maximum of 59 times. High valuations are not unique to cyclical stocks. At the end of the market, valuations basically returned to normal levels, and the valuation retracement was more significant.
and 2007-2008 cycle sector performance fluctuated greatly. In early 2008, only coal stocks achieved a Davis double-click. From 2007 to 2008, the macroeconomy experienced "ice and fire" from economic overheating to financial crisis, which was reflected in the large fluctuations in the performance of A shares and cyclical sectors. The growth rate of A-share net profit turned from rising to declining in 2008. Except for coal, the profits of all non-cyclical sectors fell in 2008. Among them, the growth rate of net profit attributable to the parent company of non-ferrous metals dropped from 130% in 2006 to -87% in 2008, and the growth rate of net profit attributable to the parent company of steel dropped from 25% in 2006 to -59% in 2008; in 2007, the growth rate of steel and nonferrous metals The ROE of metals and petroleum and petrochemicals contracted significantly in 2008 after remaining stable or slightly expanding compared to 2006. However, Coal has maintained the growth rate of net profit attributable to the parent company and the continued rise of ROE, which can explain why coal stocks experienced a structural rise in 2008, achieving a Davis double-click in a weak situation.
. The internal differentiation of the sector is serious. During the market period, the chemical sub-industry performed more prominently, while the non-ferrous sub-industry lagged behind. During this round of "coal boom" market, the leading sectors experienced a switch from non-ferrous metals to steel and then to coal. Therefore, the three-level industries leading the gains at different market stages are iron ore, copper; coke, and coking coal. , iron ore; oil refining and coking coal, etc.; oil mining, etc. Although the performance of petroleum and petrochemicals lags behind, other petrochemicals have the largest gains in the second stage, and oil extraction has relatively the smallest decline at the end of the market. The rise in the overall PPI coincides with the downturn in the cyclical market. The sub-sectors with relatively slight declines are coke and coking coal, while the sub-sectors with larger declines are lead, zinc, oil mining, etc.
. During this bull market, non-ferrous metal stocks emerged tenfold. During the rise in PPI, Yunmei Energy was the best performing cyclical upstream stock. Judging from the performance of individual stocks, in the first stage of the bull market, non-ferrous metal stocks such as ST Zhongfu and Tin Industry Shares accounted for the majority of the top ten stocks; in the second stage, they generally fell. In the process, Intercontinental Oil and Gas bucked the trend and closed up 2 times; in the third stage, it surged higher again, and the top ten coal stocks increased; in the fourth stage, Panzhihua Iron and Steel Vanadium Titanium fell relatively lightly, etc. During the PPI upward trend, it was the worst period of the cycle, but Yunmei Energy and Intercontinental Oil and Gas doubled.
To sum up, during the 2007-2008 cyclical stock market, the leading sector switched from steel to non-ferrous metals and coal, mainly due to the performance advantages of coal and non-ferrous metals, thus getting out of the "coal boom" market. The excess returns mainly exist in the first surge stage, which corresponds to the PPI growth rate accelerating upward; the subsequent rising excess returns stage of coal stocks corresponds to the PPI growth rate peaking stage. Although investing based on PPI indicators will start later than the actual market, you can seize the opportunity for excess returns; in the second round of PPI surge, you need to make good stock selection, and excess returns are mainly concentrated in coal stocks.
The second "coal boom" market from 2009 to 2011
After the financial crisis in 2009, various countries implemented rescue policies and the country introduced a four trillion stimulus plan. Economic performance rebounded significantly, and PPI growth ushered in a new round of rise. The cycle Among stocks, mining and non-ferrous metals once again outperformed the market, and A-shares ushered in the second "coal boom" market since 2007. This market showed the following characteristics:
. PPI's year-on-year growth rate shot up rapidly and then showed an M-shaped trend at a high level. There was a slight correction on the way, and PPI accounted for a relatively high proportion of the time at the high level. The year-on-year growth rate of this round of PPI began to rise at the bottom of July 2009. Due to the continued release of demand, crude oil prices continued to rise in April 2011 and remained at a high level until mid-2014. PPI growth peaked for the first time in mid-2010 and returned to high levels after a brief adjustment. The month-on-month growth rate of PPI peaked in October 2010, and then continued to fall; the year-on-year growth rate of PPI remained at a high level until the third quarter of 2011, and finally began to decline. During this round of PPI cycle, the year-on-year growth rate of PPI has been running at a high level for about 27 months, significantly exceeding the 10 months in the climbing stage.
. This round of cyclical stock prices is once again in sync with the general trend, leading the performance of PPI for more than half a year. After experiencing a correction on the way, the cyclical sector experienced a second surge and exceeded the previous high. Then it entered a longer period of shock and decline. What is more consistent with the previous "coal-flying" market is that the start of this round of cycle market is mainly affected by the rebound of the market, showing a significant lead over the PPI indicator, about half a year in advance. When the market adjusts, it is precisely when the PPI growth rate surges fastest. When PPI entered the correction stage, coal and non-ferrous metals started a new round of market prices, rising rapidly and reaching a high that exceeded the previous high. With PPI at a high level for a long time, the two then fluctuated and eventually continued to fall with the market.
, coal and non-ferrous metals outperformed the market throughout the entire process, steel and petroleum and petrochemicals performed mediocrely, and the cyclical sectors were divided again. The current market trend of is part of the rebound in 2009. During this period, non-ferrous metals showed a strong ability to obtain excess returns. In the initial stage, they outperformed the market and rose, followed closely by coal stocks. When PPI growth peaked for the first time in mid-2010, the cyclical market reached a periodic low. Subsequently, during the PPI correction, the excess returns of the cyclical sector showed a strong rebound. It reached the top during the second surge in PPI growth rate. Subsequently, as the PPI fluctuated at a high level, the excess returns of nonferrous metals magnified the fluctuations, and the excess returns of coal increased slightly. After the PPI growth rate entered the downward channel, the excess returns of the cycle all fell, but the excess returns of petroleum and petrochemicals showed resistance to the decline.
, Coal ROE has always maintained the lead from 2008 to 2011, non-ferrous metal ROE has continued to expand since 2009, non-ferrous and steel net profit growth rebounded sharply in 2010, and cyclical sector performance stocks have shown high elasticity. After the 2008 financial crisis, under the influence of stimulus policies, the cyclical sector reached its bottom in 2009, and then continued to improve to varying degrees, becoming the fundamental foundation of this round of market conditions. Among them, the ROE of the coal sector maintained a steady increase. After continuous declines, the net profits of steel and non-ferrous metals rebounded sharply in 2011, reaching 182% and 171% respectively. However, the growth rate of steel net profits turned negative again in 2011. Although the net profit growth rate of non-ferrous metals narrowed, ROE continued. Uptrend. Both coal and non-ferrous metals can find performance foundations to support the market.
. During this cycle, the valuations of the cyclical sectors hit new highs, and the valuations of steel and non-ferrous metals were abnormally high, showing new changes in asset valuations in the post-financial crisis era. During this cycle, the easing policies of global central banks after the financial crisis made asset valuations more flexible. Among them, the valuation of the cyclical sector reached a new high in this round of market conditions. For example, the highest valuations of steel and non-ferrous metals (PE, TTM) reached 67.9 times and 92.9 times respectively, showing the impact of past sustained negative net profits and rising market prices on valuations.
. During the rise, some non-ferrous metal and chemical sub-sectors performed well, and some chemical sub-sectors entered the adjustment stage and were relatively resilient. Judging from the performance of the third-level industry, during the first phase of the rise, copper, coking coal, iron ore and lead and zinc increased more than 2 times; entering the second phase of adjustment, all copper and iron ore that led the gains in the first phase The largest decline was seen in the petroleum sub-sector, which showed resilience with relatively small declines; during the third stage of rebound, iron ore and non-ferrous metals once again led the overall gains, while oil and coke once again lagged behind. Entering the fourth stage, the anti-fall sector is dominated by chemicals, while non-ferrous metals lag behind overall. During this round of PPI upswing, the market turned from rising to falling. The leading sub-sectors were mainly oil product sales, other petrochemicals and special steel, while the leading sub-sectors were plate and oil production, etc.
. During the first wave of rising prices, many bull stocks emerged in coal, while non-ferrous metal stocks dominated the list during the second round of rising prices. Judging from the performance of individual stocks, in the first stage of the market, the leading cyclical stocks were Shanxi Coal International, Huaihe Energy , Yongtai Energy , etc., all of which achieved a 4-fold increase, and coal stocks occupied the top five; In the second stage, Shengda Resources, Guangsheng Nonferrous Metals and other nonferrous metal sector stocks rose against the trend; in the third stage, nonferrous metals became the rebound pioneers, Guangsheng Nonferrous Metals , China Nonferrous Metals and Xiamen Tungsten Industry and other stocks rose. Move forward; in the fourth stage, Pengxin Resources , ST Pengqi can still continue their upward trend, etc. During the PPI upswing, Hengyi Petrochemical , Shanda Resources and Northern Rare Earth were among the top performers, all achieving at least a threefold increase.
To sum up, the current market situation is mainly a large-scale rebound formed by superimposing stimulus policies on the basis of bottom valuation after the 2008 financial crisis. The expansion of demand and the reversal of performance in 2010 formed the second The basis of the "coal and colorful" market. However, the start of this cycle is once again ahead of the PPI indicator, fluctuating with the market. When the PPI index enters the rising stage, cyclical stocks enter the adjustment stage. The excess returns of this round of market conditions are mainly concentrated in the first stage, including the initial stage of the PPI growth rate upwards and the second stage of climbing, and are mainly concentrated in the coal and non-ferrous metal sectors. Therefore, although the market started earlier than the PPI upward trend, investing based on the PPI indicator and choosing coal and non-ferrous metal stocks with better performance prospects will still yield good excess returns.
016-2017 supply-side reform commodity cattle market
In November 2015, my country proposed to implement supply-side structural reform .In 2016, with the help of supply-side contraction, crude oil and other bulk commodities ended a year and a half of decline and entered a new round of rising cycles, with PPI growth rising simultaneously. However, during this round of market conditions, after experiencing the bull market in 2015, the cyclical sector did not generally overshoot due to rising commodity prices. The low market sentiment suppressed the performance of the cyclical sector. The performance of this round of cyclical stocks mainly has the following characteristics.
. This round of PPI once again showed an M-shaped trend after rising year-on-year, but the proportion during the high period decreased. This round of PPI began to rise at the end of 2015, and the year-on-year and month-on-month growth rates increased together. Until the month-on-month and year-on-year peaks were reached in November 2016 and February 2017, the highest PPI year-on-year value was 7.8%; then the month-on-month growth rate continued to fall. , driving a correction in the year-on-year growth rate; in July 2017, the month-on-month growth rate returned to positive, and the year-on-year growth rate began to rise again; in October 2017, the PPI reached a high of 6.9% and then turned around and entered a downward channel. The month-on-month growth rate had previously reached a peak in September. top. The time at the high was about 8 months, and the upswing lasted 14 months.
. This cycle of market conditions has emerged with the bull market and is once again ahead of the PPI indicator. Subsequently, due to the continued release of systemic risks, the performance of the sector was suppressed, showing a trend of highs and lows later. This round of cyclical stocks was obviously affected by the bull-bear transition market in 2015, showing that the bull market started early, but then fell sharply; when the PPI started to rise, A-shares experienced two rounds of circuit breakers, and the market sentiment was at a low level. , cyclical stocks gradually rose as the market slowly recovered; when PPI entered a phased adjustment period, the cyclical sector ushered in a second opportunity to rise higher. After entering September, PPI entered a downward cycle, and cyclical stocks also entered a downward stage, while the Shanghai Stock Index continued to rise until the beginning of 2018. At this stage, the correlation between the trend of cyclical stocks and the PPI indicator has increased.
. In this round of market, the dominant cyclical sector switched from steel to non-ferrous metals. In the later period, the excess returns of non-ferrous metals and coal were equivalent. From the perspective of excess returns, steel took the lead in launching the bull market in 2015, while the excess returns of coal, non-ferrous metals and petroleum and petrochemicals continued to decline, and the market style was biased towards small-cap stocks which was not conducive to the performance of cyclical stocks; in April 2015, the cyclical sector exceeded Income suddenly rose together, and steel's excess return rate reached the peak of this round of market conditions. When the market ended the circuit breaker and entered a "slow bull" period, the excess returns of non-ferrous metals and coal successively surpassed that of steel. After the party's PPI growth rate reached its peak for the first time, the excess returns of the cycle began to converge; when the PPI growth rate was about to start rising again, the cycle Excess returns rose again, with nonferrous metals and coal slightly ahead.
. Steel performance has shown high fluctuations in this round of market conditions. Coal and non-ferrous metals have benefited from the commodity bull market and their performance has increased sharply, forming the fundamental foundation of the cyclical market. From the perspective of performance, due to the continued decline in commodity prices from 2014 to 2015, the net profit growth rate of steel in 2015 was -1173%, and ROE was negative; both petroleum, petrochemicals and coal have experienced negative net profit growth for two consecutive years, and the performance pressure of cyclical stocks is very high. big. After entering 2016, the ROE of steel stocks returned to positive, and the net profit growth rates of coal and non-ferrous metals reached 893% and 502% respectively, showing high performance fluctuations; the steel sector achieved a net profit increase of 717% in 2017. From 2016 to 2017, the ROE of cyclical stocks improved.
. The valuation of stocks in this market cycle has once again shown high fluctuations. During this bull market, economic growth is still in a downward stage, so the market generally has higher valuations. The highest valuations of steel, coal and non-ferrous metals have all exceeded the peak of the previous cycle. The valuations are abnormally high due to the mismatch between market conditions and performance. However, even after the market fell back, non-ferrous metals still maintained a valuation of 45 times, steel had a valuation of 18 times, and petroleum and petrochemicals had a valuation of 32 times.
. In the weak market, oil refining continued to lead the rise, and the non-ferrous metal sub-sector performed better during the second surge. In this round of market conditions, the top five sub-sectors Sinopec , coal, non-ferrous metals and steel were all on the list; in the second and third stages of weak market conditions, oil refining Continuing to lead the gains, copper and other , coal chemical, , etc. have been among the top losers; in the second surge stage, the non-ferrous metals sub-sector dominated the top three gainers, while the petroleum and petrochemical sub-sectors lagged behind overall. At the end of the market, the petroleum and petrochemical sub-sector showed resilience. The rising PPI period is a time when the market conditions are poor. Refining, long products, flat products, etc. perform at the top during this period, while special steel, oil exploration, etc. lag behind.
. Five times the number of bull stocks emerged in the first round of this round of rising prices, and bull stocks ranked among the top risers and losers in nonferrous metals at different stages. In the first wave of rising prices in this round, Shagang Co., Ltd. recorded an increase of more than 5 times. Among steel stocks, Shaogang Songshan and Hegang Resources recorded an increase of more than three times. There are many bull stocks in steel stocks; enter After the second stage, the market weakened, and only 4 stocks among cyclical stocks recorded gains, among which Tianqi Lithium Industry was the top gainer; the third stage slowly climbed, with Huayou Cobalt, Hegang Resources, etc. performing better; the fourth stage In the short-lived upward stage, Fangda Carbon , Hanrui Cobalt, etc.; in the fourth stage of decline, Hanrui Cobalt continued its strong performance. Bull stocks have emerged in nonferrous metals at different stages.
To sum up, this round of market prices once again rose earlier than PPI due to the bull market. However, because the market style is biased towards small-cap stocks, cyclical stocks have not significantly benefited from the surge in commodity prices and have the opportunity to continuously obtain excess returns. The economic downturn combined with the price effect has caused large fluctuations in the performance of cyclical sectors, which is a round of investment opportunities that are difficult to grasp. The excess returns in this round of market conditions are mainly concentrated in steel stocks during the bull market, and non-ferrous metals in the first round of PPI rise; if you start to place cyclical stocks during the PPI adjustment period, you can grasp the excess returns of cyclical stocks before the PPI rises for the second time. rebound. On the whole, investing in cyclical stocks based on the PPI indicator will still yield opportunities for excess returns, but the total return rate will be lower than the past three rounds of cyclical stocks.
Investment advice: The second spike in PPI growth is the key to grasping the cyclical market
Based on the above review of the performance of cyclical stocks in the first four PPI upward phases, we found that there are the following experiences that can be learned from.
. From the perspective of absolute income, each cycle of market trends depends on the trend of A-share market. However, from the perspective of excess returns, the PPI indicator has important reference value for grasping the cyclical market. Based on the aforementioned experience summary, it can be seen that the relationship between the four cyclical stock prices and the year-on-year growth rate of PPI is relatively unstable. The "Five Golden Flowers" era lags behind the PPI index, while the two "coal-flying" market trends are much ahead of the PPI index. In terms of absolute returns, investing in cyclical stocks based on the PPI index will miss the best entry time. And when the PPI rises, it is often accompanied by rising inflation expectations, leading to policy tightening, and the end of the rapid rise of A-shares. As a result, cyclical stocks enter the downward channel, becoming a staggered allocation time. However, from the perspective of excess returns, during the PPI upward or second surge stage, cyclical stocks will show a more consistent ability to obtain positive excess returns, and the second surge stage is often the time when excess returns are most concentrated. Therefore, in this sense, the PPI indicator has a very important reference value for grasping the timing of cyclical stock allocation and optimizing portfolio returns. We summarize the rise, fall and excess return performance of the leading sectors at different stages during the first four rounds of PPI growth. It can be seen that in the first phase of the four PPI growth rates, the representative cyclical sectors are steel, coal, The absolute returns of petroleum, petrochemicals and non-ferrous metals were -0.7%, -2.6%, -18.9% and -19.1% respectively, showing poor returns, but their excess returns performed better than absolute returns; in PPI growth, the second In the climbing stage, the representative cyclical sectors are mining, petroleum and petrochemicals, coal and steel, with average returns of 33.1%, -28.7%, 35.3% and 13.7% respectively, and the corresponding excess returns are 34.9%, 10.3% and 31.9% respectively. and 35.3%, showing a return rate that far exceeds that of the market.Therefore, if you miss the previous cyclical stock market due to systemic opportunities, then during the period of rising PPI growth, the cyclical market will still have considerable excess returns or absolute return opportunities.
In addition, the structure of each PPI upward cycle is different, and there may be a second rise or a higher proportion of high-level fluctuations. For example, during the "Five Golden Flowers" era, it took 13 months for PPI to climb higher for the second time, which exceeded the 11 months it took for the first time. During the second "Coal Flying Color" market, the duration of the second climb was the same as the first time. Quite a wait. According to the aforementioned cyclical stocks, excess return opportunities tend to be concentrated in the second rise stage. Therefore, if the market share of the second rise is large, the window period for long cyclical stocks will be extended, which will greatly increase the opportunities for investing in cyclical stocks.
and PPI month-on-month growth rate are better leading indicators and can be used to seize opportunities in cyclical stocks. Since the month-on-month indicator is a marginal change in the year-on-year indicator, the change in the month-on-month indicator from positive to negative or from negative to positive often indicates an inflection point change in year-on-year growth, which may mean the emergence of cyclical stock investment timing. Through statistics, we can find that in the past four rounds of market conditions, the month-on-month PPI indicator will lead the year-on-year indicator by about 4 months and start to turn positive or rebound; the month-on-month indicator will lead the year-on-year indicator by 1-2 months to peak and then fall; the month-on-month indicator will lead the year-on-year indicator by 0-3 months It will start to rebound or turn positive within a month; the month-on-month growth rate will peak for the last time about one month before the turning point of the end of the PPI rising cycle. Therefore, it is a feasible method to invest in cyclical sectors based on chain indicators. However, how to specifically judge the direction of month-on-month changes can be combined with high-frequency indicators of volume and price in relevant industries. We will conduct detailed research in subsequent reports.
. The dominant industries in each cycle will change. Choosing the best cycle sub-sector is also the key to winning. Comparing the excess return performance of different sectors in previous cycle markets, we can see that (due to comparability, we only examined the two "coal flying colors" and the three historical market prices of the commodity bull market. In order to reduce the impact of the differences in each round of A-share market, We focus on excess return performance). First, petroleum and petrochemicals have always been a sector with poor excess return performance. As shown in Figure 36, the excess returns of petroleum and petrochemicals were relatively flat during each cycle. In 2007-2008, they even showed a "mirror" trend with other cyclical sectors, with excess returns falling sharply. Therefore, as a first-level industry, petroleum and petrochemicals are not ideal allocation targets in the cyclical market; secondly, coal and non-ferrous metals have been performing relatively positively, representing the main allocation direction of the cyclical market. As can be seen from Charts 37 and 38, in previous cyclical market conditions, the excess returns of coal and non-ferrous metals can often rise steadily, or can achieve a rapid rise, becoming a more ideal allocation direction. Moreover, during the second surge of PPI, their excess return performance can often be followed by a second rise (such as coal in 2008 and 2010, and non-ferrous metals in 2010), which is the main source of excess returns for cyclical stocks; Third, the excess returns of the steel sector fluctuate greatly, so timing is critical. As can be seen from Chart 39, the total excess return level of the steel sector is lower than that of coal and non-ferrous metals. It is highly volatile and prone to rapid rises and falls. Therefore, the ability to time investments in the steel sector during the cyclical stock market is more important.
. Changes in market style are systemic factors that cannot be ignored when investing in cyclical stocks. Since the cyclical sector is dominated by large-cap stocks and low-valuation stocks, growth is poor during the economic downturn. (In 2003, steel stocks showed higher growth; some non-ferrous metals will also perform well driven by demand and economic structural transformation. high growth), so in addition to the aforementioned A-share market factors, differences in market styles within each time period will also cause differences in cyclical market performance.For example, in 2003, the market as a whole was in the blue-chip and growth stock market, and the steel industry, as one of the sectors with the best growth and the largest market value at that time, was highly sought after; in 2007-2008, the market completed the transition from growth to value and from growth to value with the help of the bull-bear transition. Large caps switched to small caps, with nonferrous metals and mining benefiting from the growth of the bull market and the style of large cap stocks. During the decline, the performance of non-ferrous metals gradually lagged behind coal, reflecting the shift in market style to value; in 2009-2010, the market was dominated by growth and small-cap styles, and the performance of mining and non-ferrous metals was significantly better than that of steel and chemicals; in 2016-2017 In 2017, the market style experienced a round of growth-value switching and ushered in a turning point in large-cap and large-cap styles. Therefore, it was obvious that the rise of cyclical stocks was suppressed and could not fully reflect the improvement effect of the commodity bull market on sector performance. Therefore, judging the changes in market style has important reference value for reasonably expecting the return rate of cyclical stocks under the support of fundamentals such as PPI.
In summary, the rise in PPI means a periodic improvement in the economy, expansion of demand, and a basis for improvement in the performance of cyclical stocks and market performance. However, by reviewing the cyclical stock market during previous PPI rises, we can find that the cyclical stock market often appears with the start of the market market, so its absolute return performance and the PPI indicator show a relatively obvious time misalignment. However, from the perspective of excess returns, the PPI indicator has a good reference value. The excess returns of cyclical stocks are mainly concentrated during the second surge of the PPI index. The second surge of PPI growth rate is the real window period for long cyclical stocks, and PPI The month-on-month change is an important basis for judging whether PPI will correct or rise again on the way. In terms of sector allocation, coal and non-ferrous metals have always been the focus of cyclical market allocation, while petroleum and petrochemicals have lagged behind. In addition, market style switching is also an important systemic factor affecting the returns of cyclical stocks.
In the next step, we will explore the rules that promote the cyclical stock market from the deep causes of the cyclical market, such as macro, market and performance, and study how to invest in cyclical stocks with high frequency; combined with the performance characteristics of cyclical stocks since May 2020 Look forward to the future development direction of cyclical stock market and put forward suggestions on key allocation directions.
Risk warning
Economic performance is lower than expected, global commodity inventories rebounded more than expected, and a black swan event occurred
For complete risk warnings and the full text of the report, please refer to the published public report "Comparative Study on the Historical Markets of Cyclical Stocks One: Cyclical Stock Markets During Previous PPI Upswings" Review》
Public release date: June 3, 2021
Report issuing organization: Industrial Securities Co., Ltd. (securities investment consulting business qualification licensed by the China Securities Regulatory Commission)
Analyst for this report:
Wang Delun SAC practice certificate number: S0190516030001
Wang Yiyi SAC practicing certificate number: S0190518020004
Li Meicen SAC practicing certificate number: S0190518080002
Zhang Zhao SAC practicing certificate number: S0190518070001
Zhang Xun SAC practicing certificate number: S0190520070004
Yang Zhenyu SAC practicing certificate number: S0190520120002
Wu Feng SAC practicing certificate number: S0190510120002
Research assistant:
Zhang Risheng Zhang Yuan Li Jiajun
Industrial Securities Strategy Team
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